Rule Change: Completed
On 26 April 2019 the AEMC made a final rule that allows transmission and distribution network businesses to submit a contingent project application at any time during a regulatory control period up until the last 90 business days of the second last year of the regulatory control period.
Contingent projects are major network infrastructure assets which have been pencilled in to long-term investment plans. Contingent projects are flagged in network revenue proposals, and approved by the Australian Energy Regulator (AER) in revenue determinations.
When a network business has met the requirements to request cost recovery from consumers for one of these projects, it submits a contingent project application to the AER. Currently, network businesses cannot submit a contingent project application for approval in the last 90 business days of a regulatory year, or at any time during the final regulatory year of a regulatory control period.
The contingent project mechanism in the National Electricity Rules (NER) framework requires that there be a remaining year in the regulatory control period after the AER amends a distribution business’ determination, or a transmission business’s revenue determination in response to a contingent project application, in order for that amended determination to take effect.
The final rule removes the restriction in the NER that prevents transmission and distribution network businesses from submitting a contingent project application to the AER in the 90 business days before the end of a regulatory year, except for the second last year of a regulatory control period.
The more preferable final rule explicitly states that a contingent project application cannot be submitted at any time during the final year of a regulatory control period, which is currently implicit in the NER.
Any incremental revenues approved by the AER in respect of a contingent project application submitted during the last 90 business day window of a regulatory year cannot start to be recovered by the relevant network service provider until the second regulatory year that commences after the application is submitted.
Rule change request
On 20 February 2019 the AEMC received a rule change request from Dr Kerry Schott AO, Chair of the Energy Security Board, that sought to amend the NER so that transmission and distribution network businesses are no longer prevented from submitting a contingnet project application to the AER within the last 90 business days of a regulatory year, except where that regulatory year is the last year of a regulatory control period. The rule change request also proposed that any incremental revenues approved by the AER for a contingent project application submitted during the last 90 business days of a regulatory year cannot be recovered until the second regulatory year that commences after the application is submitted.
More preferable rule
The final rule made by the AEMC is a more preferable rule to what was proposed in the rule change request because it better meets the National Electricity Objective.
The final rule is consistent with the way the contingent project mechanism is designed to operate within the NER framework. The contingent project mechanism seeks to achieve efficient outcomes for consumers through investment in transmission projects for which there is uncertainty about exactly when they will be needed at the time a network revenue proposal is submitted. The more preferable final rule maintains the ability for a network business' amended revenue determination, following a contingent project application, to be valid within a regulatory control period, providing certainty to the businesses that they will be able to recover the costs of the project.
A consultation paper was published on 7 March 2019, and submissions closed on 4 April 2019. Four submissions to the consultation paper were received and are available below.
The rule change request was considered non-controversial and the AEMC followed an expedited rule making process. No objections to the expedited process were received.
The final rule will commence on 2 May 2019.
At the COAG Energy Council meeting on 19 December 2018, Ministers discussed and agreed on an approach to deliver the priority transmission projects identified in the Australian Energy Market Operator’s Integrated System Plan as soon as possible, including rule changes to streamline regulatory processes. Subsequent to that meeting, the potential for the restriction preventing network businesses from submitting a contingent project application within the last 90 business days of a regulatory year to delay implementation of some of the priority ISP projects was identified by stakeholders.